---

**UNITED
STATESSECURITIES AND EXCHANGE COMMISSION**Washington, D.C. 20549

FORM 10-Q

[ X ] Quarterly Report Pursuant To Section 13 or 15(d) of the
Securities Exchange Act of 1934. 
For the quarterly period ended: March 31, 2011

OR

[    ] Transition Report Pursuant To
Section 13 or 15(d) of the Securities Exchange Act of 1934. 
For the transition
period from: ________to ________

Commission File Number: 000-030813

**AlphaRx, Inc.**(Name of
Small Business Issuer in its Charter)

|Delaware                                                            | 98-0416123                          
|------------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporated or
      organization) | (I.R.S. Employer Identification No.)

Level 19, Two International Finance Center 8 Finance Street,
Central, Hong Kong (Address of principal executive offices)

Registrant's telephone number, including area code: (852)
2251-1927

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X]      No [   ]

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation
S-(§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).

Yes [   ]      No [X]

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer, and smaller reporting company in rule 12b-2 of the
Exchange Act.

|Large accelerated filer [   ]                                                   |  | Accelerated filer [   ]      
|------------------------------------------------------------------------------- |  | -----------------------------
|Non-accelerated filer [   ] (Do not check
      if a smaller reporting company) |  | Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).

Yes [   ]    No [X]

The number of outstanding shares of registrant's Common Stock
on May 13, 2011 was 94,635,047.



See condensed notes to interim consolidated financial
statements

---

|ALPHARX, INC. FORM 10-Q  March 31, 2011                                                                                                                        
|---------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                               
|TABLE OF CONTENTS                                                                                                                                              
|                                                                                                                                                               
|Part I: Financial Information                                                                                                                                  
|Item 1. Financial Statements.                                                                                                                                  
|Unaudited Interim Consolidated Balance
      Sheets as of March 31 2011 and September 30, 2010 (Audited)                                                       
|Unaudited Interim Consolidated Statements of Operations and
      Comprehensive Loss for the three and six months ended March 31, 2011 and
      March 31, 2010
|Unaudited Interim Consolidated Statements
      of Changes in Shareholders Deficit as of March 31, 2011 and September 30,
      2010                          
|Unaudited Interim Consolidated Statements of Cash Flow for
      the three and six months ended March 31, 2011 and March 31, 2010                              
|Condensed Notes to Unaudited Interim
      Consolidated Financial Statements                                                                                   
|Item 2. Managements Discussion and Analysis of Financial
      Condition and Results of Operation                                                             
|Item 3. Quantitative and Qualitative
      Disclosures About Market Risk.                                                                                      
|Item 4. Controls and Procedures.                                                                                                                               
|Part II: Other Information                                                                                                                                     
|Item 1. Legal Proceedings.                                                                                                                                     
|Item 1A. Risk Factors.                                                                                                                                         
|Item 2. Unregistered Sales of Equity Securities and
      Use of Proceeds.                                                                                     
|Item 3. Defaults Upon Senior
      Securities.                                                                                                                 

See condensed notes to interim consolidated financial
statements

2

---

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

ALPHARx, INC.  INTERIM CONSOLIDATED BALANCE
      SHEETS  AS AT MARCH 31, 2011 AND SEPTEMBER 30, 2010  (All amounts in US
      Dollars)

|                                                              |  |   |           |   | March 31,   |           |   | September 30, |  
|------------------------------------------------------------- |  | - | --------- | - | ----------- | --------- | - | ------------- | -
|                                                              |  |   |           |   | 2011        |           |   | 2010          |  
|                                                              |  |   |           |   | (UNAUDITED) |           |   | (AUDITED)     |  
|CURRENT ASSETS                                                |  |   |           |   |             |           |   |               |  
|Cash and Cash Equivalents                                     |  |   |           | $ | 8,443       |           | $ | 16,264        |  
|Accounts Receivable                                           |  |   |           |   | 42,130      |           |   | -             |  
|Prepaid                                                       |  |   |           |   | 99          |           |   | 147,839       |  
|TOTAL CURRENT ASSETS                                          |  |   |           |   | 50,672      |           |   | 164,103       |  
|PROPERTY, PLANT and EQUIPMENT, net                            |  |   | 24,416    |   |             | 43,078    |  
|TOTAL ASSETS                                                  |  |   |           |   | 75,088      |           |   | 207,181       |  
|CURRENT LIABILITIES                                           |  |   |           |   |             |           |   |               |  
|Accounts
      Payable and Accrued Liabilities                |  |   | 604,310   |   |             | 520,342   |  
|Notes Payable (Note 3)                                        |  |   |           |   | 882,766     |           |   | 790,671       |  
|Deferred Revenue                                              |  |   |           |   | -           |           |   | -             |  
|TOTAL CURRENT LIABILITIES                                     |  |   | 1,487,076 |   |             | 1,311,013 |  
|STOCKHOLDERS DEFICIENCY                                      |  |   |           |   |             |           |   |               |  
|Common Stock: $ 0.0001 par value,                             |  |   |           |   |             |           |   |               |  
|Authorized: 250,000,000 shares; Issued and outstanding        |  |   |           |   |             |           |  
|March
      31 and September 30, 2010- 94,635,047 (Notes 5-7) |  |   | 9,464     |   |             | 9,464     |  
|Additional paid-in
      capital                              |  |   |           |   | 17,501,702  |           |   | 17,500,855    |  
|Deficit                                                       |  |   |           |   | (19,100,236 | )         |   | (18,789,891   | )
|Accumulated
      Other Comprehensive Loss                    |  |   | (2,523    | ) |             | (2,284    | )
|Non-controlling Interest                                      |  |   |           |   | 179,605     |           |   | 178,024       |  
|TOTAL
      DEFICIENCY                                        |  |   |           |   | (1,411,988  | )         |   | (1,103,832    | )
|TOTAL LIABILITIES AND DEFICIENCY                              |  | $ | 75,088    |   | $           | 207,181   |  

|Signed: Michael Lee | Signed: Dr. Ford Moore
|------------------- | ----------------------
|Director            | Director              

See condensed notes to interim consolidated financial
statements

3

---

ALPHARx, INC.INTERIM CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE LOSSFOR THE THREE MONTHS AND SIX MONTHS ENDED
MARCH 31, 2011 AND 2010 (UNAUDITED) (All amounts in US Dollars)

|                                                                 |   | 3 months ended |   |   | 3 months ended |   |   | 6 months ended |   |   | 6 months ended |  
|---------------------------------------------------------------- | - | -------------- | - | - | -------------- | - | - | -------------- | - | - | -------------- | -
|                                                                 |   | March 31 2011  |   |   | March 31 2010  |   |   | March 31 2011  |   |   | March 31 2010  |  
|Consulting Revenue                                               |   | 25,015         |   | $ | 30,000         |   | $ | 25,015         |   | $ | 30,000         |  
|License Fees and Royalties                                       |   | 26,375         |   |   | 18,720         |   |   | 49,205         |   |   | 70,290         |  
|TOTAL REVENUES                                                   |   | 51,390         |   |   | 48,720         |   |   | 74,220         |   |   | 100,290        |  
|General and Administrative Expenses                              |   | 127,398        |   |   | 163,912        |   |   | 297,126        |   |   | 262,390        |  
|Research and Development Expenses                                |   | 2,632          |   |   | 57,638         |   |   | 16,278         |   |   | 103,029        |  
|Depreciation                                                     |   | 9,075          |   |   | 10,061         |   |   | 18,729         |   |   | 20,142         |  
|LOSS FROM OPERATIONS                                             |   | (87,715        | ) |   | (182,891       | ) |   | (257,913       | ) |   | (285,271       | )
|OTHER EXPENSES                                                   |   |                |   |   |                |   |   |                |   |   |                |  
|Interest
      Expense, net                                      |   | (25,943        | ) |   | (22,884        | ) |   | (50,997        | ) |   | (42,719        | )
|LOSS BEFORE INCOME TAXES                                         |   | (113,657       | ) |   | (205,775       | ) |   | (308,910       | ) |   | (327,990       | )
|Income Tax                                                       |   | -              |   |   | -              |   |   | -              |   |   | -              |  
|NET LOSS                                                         |   | (113,657       | ) |   | (205,775       | ) |   | (308,910       | ) |   | (327,990       | )
|Net Income/Loss attributable to Non-
      controlling interests |   | 3,889          |   |   | (303           | ) |   | 7,791          |   |   | (606           | )
|NET LOSS ATTRIBUTABLE TO ALPHARX INC. STOCKHOLDERS               |   | (109,768       | ) |   | (206,078       | ) |   | (301,119       | ) |   | (328,596       | )
|COMPREHENSIVE LOSS                                               |   |                |   |   |                |   |   |                |   |   |                |  
|Net Loss                                                         |   | (113,657       | ) |   | (205,775       | ) |   | (308,910       | ) |   | (327,990       | )
|Translation Adjustment                                           |   | 1904           |   |   | 1,735          |   |   | (299           | ) |   | (2,401         | )
|Comprehensive Loss                                               |   | (111,753       | ) |   | (204,040       | ) |   | (309,209       | ) |   | (330,391       | )
|Less: Comprehensive
      Loss/Income                            |   |                |   |   |                |   |   |                |   |   |                |  
|attributable to Non-controlling interests                        |   | (381           | ) |   | (71            | ) |   | 60             |   |   | 246            |  
|COMPREHENSIVE LOSS ATTRIBUTABLE TO ALPHARX
      INC.            |   |                |   |   |                |   |   |                |   |   |                |  
|STOCKHOLDERS                                                     | $ | (112,134       | ) | $ | (204,111       | ) | $ | (309,149       | ) | $ | (330,145       | )
|Net Loss per Share, basic and
      diluted                      |   |                |   |   |                |   |   |                |   |   |                |  
|attributable to AlphaRx Inc. stockholders                        | $ | (0.001         | ) | $ | (0.01          | ) | $ | (0.003         | ) | $ | (0.01          | )
|Weighted Average Number of Common                                |   |                |   |   |                |   |   |                |   |   |                |  
|Shares Outstanding                                               |   | 94,635,047     |   |   | 92,371,192     |   |   | 94,635,047     |   |   | 92,371,192     |  

See condensed notes to interim consolidated financial
statements

4

---

ALPHARx, INC.
      INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS DEFICIENCY
      FOR THE PERIOD ENDED MARCH 31, 2011 (UNAUDITED) (All amounts in US Dollars)

|                                                             | Common Stock |            |  |   |        |  |   |            |  |       |             |   |  |                  |   |   |               |   |   |            
|------------------------------------------------------------ | ------------ | ---------- |  | - | ------ |  | - | ---------- |  | ----- | ----------- | - |  | ---------------- | - | - | ------------- | - | - | -----------
|                                                             |              |            |  |   |        |  |   |            |  |       | Accumulated |   |  |                  |   |   | Total AlphaRx |   |   |            
|                                                             |              |            |  |   |        |  |   | Additional |  |       | Other       |   |  |                  |   |   | Inc.          |   |   | Non-       
|                                                             |              | Number of  |  |   |        |  |   | Paid in    |  |       | Com-        |   |  |                  |   |   | Stockholders |   |   | controlling
|                                                             |              | Shares     |  |   | Amount |  |   | Capital    |  |       | prehensive  |   |  | Deficiency       |   |   | Deficiency    |   |   | Interest   
|Balance as of September 30,
      2009                       |              | 92,371,192 |  | $ | 9,238  |  | $ | 17,052,076 |  |       | **(2,317**  | ) |  | **(18,061,820**  | ) |   | (1,002,823    | ) |   | 102,240    
|Warrants issued for services                                 |              |            |  |   |        |  |   | 262,090    |  |       |             |   |  |                  |   |   | 262,090       |   |   |            
|Debt                                                         |              |            |  |   |        |  |   |            |  |       |             |   |  |                  |   |   |               |   |   |            
|Conversion                                                   |              |            |  |   |        |  |   | 73,723     |  |       |             |   |  |                  |   |   | 73,723        |   |   |            
|Addl pickup of Equity by NCI Stock issued
      for Service |              | 2,263,855  |  |   | 226    |  |   | 112,966    |  |       |             |   |  |                  |   |   | 113,192       |   |   | 99,514     
|Foreign Currency Translation                                 |              |            |  |   |        |  |   |            |  |       | **33**      |   |  |                  |   |   | 33            |   |   |            
|Non- controlling interest                                    |              |            |  |   |        |  |   |            |  |       |             |   |  |                  |   |   |               |   |   | (23,730    
|Net Loss 2010                                                |              |            |  |   |        |  |   |            |  |       |             |   |  | (728,071         | ) |   | (728,071      | ) |   |            
|Balance as of September 30,
      2010                       |              | 94,635,047 |  | $ | 9,464  |  | $ | 17,500,855 |  | **$** | **(2,284**  | ) |  | **(18,789,891**  | ) | $ | (1,281,856    | ) | $ | 178,024    
|Foreign Currency Translation                                 |              |            |  |   |        |  |   |            |  |       | **(239**    | ) |  |                  |   |   | (239          | ) |   | (60        
|Non- controlling interest                                    |              |            |  |   |        |  |   |            |  |       |             |   |  |                  |   |   |               |   |   | (7,791     
|Net Loss for the Period                                      |              |            |  |   |        |  |   |            |  |       |             |   |  | (301,119         | ) |   | (301,119      | ) |   |            
|Transaction Adjustment                                       |              |            |  |   |        |  |   | 847        |  |       |             |   |  | (9,226           | ) |   | (8,379        | ) |   | 9,432      
|Balance as of March 31,
      2011                           |              | 94,635,047 |  | $ | 9,464  |  | $ | 17,501,702 |  | **$** | **(2,523**  | ) |  | **$(19,100,236** | ) | $ | (1,591,593    | ) | $ | 179,605    

See condensed notes to interim consolidated financial
statements

5

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ALPHARx, INC.INTERIM CONSOLIDATED STATEMENTS OF
CASH FLOWSFOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 2011
AND 2010 (UNAUDITED)(All amounts in US Dollars)

|                                                                                           |   | 3 months  |   |   | 3 months            |   |   | 6 months  |   |   | 6 months  |  
|------------------------------------------------------------------------------------------ | - | --------- | - | - | ------------------- | - | - | --------- | - | - | --------- | -
|                                                                                           |   | March 31, |   |   | **March
      31,** |   |   | March 31, |   |   | March 31, |  
|                                                                                           |   | 2011      |   |   | **2010**            |   |   | 2011      |   |   | 2010      |  
|CASH FLOWS FROM OPERATING
      ACTIVITIES                                                 |   |           |   |   |                     |   |   |           |   |   |           |  
|Net Loss                                                                                   | $ | (113,657  | ) | $ | (206,078            | ) | $ | (308,910  | ) | $ | (328,596  | )
|Adjustments to reconcile net income (loss)
      to net cash used in operating activities: |   |           |   |   |                     |   |   |           |   |   |           |  
|Depreciation and
      amortization                                                        |   | 9,075     |   |   | 10,061              |   |   | 18,729    |   |   | 20,142    |  
|Prior period
      adjustment                                                              |   | 82        |   |   |                     |   |   | (1,442    | ) |   |           |  
|Changes in assets and liabilities:                                                         |   |           |   |   |                     |   |   |           |   |   |           |  
|Prepaid                                                                                    |   | (99       | ) |   |                     |   |   | (99       | ) |   |           |  
|Decrease (Increase) in accounts
      receivable                                           |   | 51,157    |   |   | (3,502              | ) |   | 105,709   |   |   | 33,015    |  
|(Decrease) Increase in
      accounts payable and accrued liabilities                      |   | 1,422     |   |   | 73,177              |   |   | 83,968    |   |   | 116,228   |  
|Accrued interest on notes
      payable                                                    |   | 45,159    |   |   | 21,081              |   |   | 88,861    |   |   | 38,017    |  
|Increase
      (Decrease) in deferred revenue                                              |   | -         |   |   | -                   |   |   | -         |   |   | (35,000   | )
|Non-Controlling Interest                                                                   |   | (3,509    | ) |   | 303                 |   |   | 1,581     |   |   | 606       |  
|NET CASH USED IN OPERATING
      ACTIVITIES                                                |   | (10,370   | ) |   | (104,958            | ) |   | (11,603   | ) |   | (155,588  | )
|CASH FLOWS FROM INVESTING ACTIVITIES                                                       |   |           |   |   |                     |   |   |           |   |   |           |  
|Purchase of Machinery
      & Equipment                                                    |   | (131      | ) |   | -                   |   |   | -         |   |   | (5,691    | )
|NET CASH PROVIDED BY INVESTING ACTIVITIES                                                  |   | (131      | ) |   | -                   |   |   | -         |   |   | (5,691    | )
|CASH FLOWS FROM FINANCING
      ACTIVITIES                                                 |   |           |   |   |                     |   |   |           |   |   |           |  
|Additional Paid-in Capital                                                                 |   |           |   |   |                     |   |   | 847       |   |   |           |  
|Issuance
      (repayment) of Notes Payable, net                                           |   | 516       |   |   | 84,670              |   |   | 3,234     |   |   | 142,486   |  
|NET CASH PROVIDED BY FINANCING ACTIVITIES                                                  |   | 516       |   |   | 84,670              |   |   | 4,081     |   |   | 142,486   |  
|Effect of exchange rate changes on cash and
      cash equivalents                         |   | 1,904     |   |   | 18,330              |   |   | (299      | ) |   | 21,657    |  
|NET INCREASE (DECREASE) IN CASH                                                            |   | (8,081    | ) |   | (1,958              | ) |   | (7,821    | ) |   | 2,864     |  
|CASH, and cash equivalents,
      beginning of period                                      |   | 16,524    |   |   | 18,828              |   |   | 16,264    |   |   | 14,006    |  
|CASH, and cash equivalents, end of period                                                  | $ | 8,443     |   | $ | 16,870              |   | $ | 8,443     |   | $ | 16,870    |  
|SUPPLEMENTARY INFORMATION                                                                  |   |           |   |   |                     |   |   |           |   |   |           |  
|Taxes Paid                                                                                 | $ | 0         |   | $ | 0                   |   | $ | 0         |   | $ | 0         |  
|Interest Paid                                                                              | $ | 0         |   | $ | 0                   |   | $ | 0         |   | $ | 0         |  

6

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ALPHARX INC. 
CONDENSED NOTES TO UNAUDITED INTERIM 
CONSOLIDATED FINANCIAL STATEMENTS 
March 31, 2011 
(UNAUDITED)

NOTE 1. NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The accompanying interim unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments (consisting of all recurring accruals) considered necessary for fair presentation have been included. Operating results for the interim periods are not necessarily
indicative of the results that may be expected for the year ended September 30, 2010. Interim unaudited consolidated financial statements should be read in conjunction with the Companys annual audited financial statements.

NOTE 2. NATURE OF BUSINESS AND GOING CONCERN

ALPHARx, INC. (the Company) was incorporated under the laws of the State of Delaware on August 7, 1997. The company is an emerging pharmaceutical company specializing in the formulation of human therapeutic products using proprietary
drug delivery technologies.

The interim unaudited consolidated financial statements reflect the activities of AlphaRx Inc., 100% of AlphaRx Canada Limited and 80% of AlphaRx International Holdings Limited and AlphaRx Life Sciences Ltd. (AIHs wholly owned subsidiary)
collectively the Company. All material inter-company accounts and transactions have been eliminated.

The accompanying interim unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, they do
not include any adjustments relating to the realization of the carrying value of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Continuance of the Company
as a going concern is dependent on its future profitability and on the on-going support of its shareholders, affiliates and creditors. Factors relating to going concern issues include working capital deficiencies, operating losses,
shareholders deficits, and continued reliance on external funding sources. In order to mitigate the going concern issues, the Company is constantly pursuing new business arrangements and striving to achieve profitability, and seeking capital
funding on an ongoing basis via the issuance of promissory notes, and private placements. The Company has contracted with several parties for research and development consulting services that could also result in future license fees and royalties.
The Company has one licensee that provides an ongoing royalty stream for its Indaflex product. The Company is constantly seeking out collaborative arrangements with third parties in anticipation of license fees, royalties, milestone payments and
consulting services.

NOTE 3. NOTES PAYABLE

The Company issued $516 in promissory notes (Net of Amount Repaid) during the three months ended March 31, 2011. These notes bear interest at 12% per annum and are repayable on the first anniversary date of issuance. Previously issued promissory
notes bear interest at rates of 8% - 12% per annum. Prepayment of these notes prior to the first anniversary date is permitted.

See also note 8  Related Party Transactions.

7

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NOTE 4. NON-CONTROLLING INTEREST

Effective June 22, 2006, AlphaRx International Holdings Ltd.
(AIH) issued 1,500 shares of its common stock to New Super Limited (NSL) at
a price of approximately $HK 6,667 per share or $HK 10 million in cash (USD
$1,288,826). There were 10,000 common shares outstanding of which 8,500 or 85%
belong to the Company. With the consolidation of only 85% of AIH, a
non-controlling interest was established, representing net amounts owing to the
non-controlling shareholder. The capital infusion into AIH is accounted for as
additional paid in capital on the interim consolidated financial statements of
the Company.

On May 18, 2010, AlphaRx International Holdings Ltd. (AIH)
issued 625 shares of its common stock to New Super Limited (NSL) at a price of
approximately $HK 2,166 per share, or $HK1,353,750 in cash (USD$173,292),
representing a further 5% non-controlling interest and increasing the total of
the non-controlling interest to 20% after the infusion.

NOTE 5. COMMON STOCK

The Company is authorized to issue 250,000,000 shares of common
stock. As of March 31, 2011 there were 94,635,047 shares of Common Stock issued
and outstanding with a stated par value of $0.0001 per share.

NOTE 6. STOCK OPTION PLANS

The Company has one Stock Option Plan (the 2008 Stock Option
Plan) under which officers, key employees, certain independent contractors, and
independent directors may be granted options to purchase shares of the Companys
authorized but unissued Common Stock. All outstanding options currently expire
no later than June 30, 2012. Proceeds received by the Company from exercises of
stock options are credited to Common Stock and additional paid-in capital.

At the Companys Annual General Meeting held November 26, 2008
a majority of stockholders approved amendments to the existing Stock Option
Plans including, among others: (i) combining the 2004 and 2006 Plans into the
2008 Stock Option Plan for ease of administration; (ii) providing a cap for the
number of options to be issued at 22,000,000; (iii) providing guidelines for
exercise prices such that the exercise price of any newly granted option is
never less than the market value or in the case of a 10%+ holder, never less
than 110% of the market value on the date of grant; (iv) providing for a maximum
term of 5 years for any option granted; (v) provide for a vesting schedule
whereby vesting must occur over at least 18 months with no more than
1/6th of the options granted vesting in any 3 month period; (vi)
providing for the maximum number of options to be granted to any one individual
in any 12 month period to be no more than 5% of the issued and outstanding
common stock, and (vii) providing for a maximum number of options to be granted
to any Investor Relations party to be no more than 2% of the issued and
outstanding common stock.

As a result of the new terms governing the Companys 2008 Stock
Option Plan, the maximum number of options that can still be issued totals
4,310,000, regardless of whether existing options are exercised or canceled.

During the three months ended March 31, 2011, no options were
granted and no options were exercised. Additional details of the 2008 Plan, as
at March 31, 2011 are as follows:

8

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|                                                                                         |  | Number     |      |  |                      |  |  |             |  |  | Share Price |      |  |             |  |  |              | 
|---------------------------------------------------------------------------------------- |  | ---------- | ---- |  | -------------------- |  |  | ----------- |  |  | ----------- | ---- |  | ----------- |  |  | ------------ | 
|                                                                                         |  | Granted,   |      |  |                      |  |  |             |  |  | on Grant    |      |  |             |  |  | Remaining    | 
|2008 Stock                                                                               |  | Exercised, |      |  |                      |  |  | Exercise    |  |  | Date $      |      |  | Expiry Date |  |  | Contractual  | 
|Option Plan                                                                              |  | Expired or |      |  | Issue Date           |  |  | Price $     |  |  |             |      |  |             |  |  | Life (Years) | 
|                                                                                         |  | Cancelled  |      |  |                      |  |  |             |  |  |             |      |  |             |  |  |              | 
|Inception                                                                                |  | 0          |      |  |                      |  |  |             |  |  |             |      |  |             |  |  |              | 
|Granted                                                                                  |  | 12,720,000 |      |  | 15/11/2004           |  |  | 0.15        |  |  | 0.11        |      |  | 6/30/2012   |  |  | 1.25         | 
|Cancelled                                                                                |  | (6,000,000 | )    |  | 12/28/2007           |  |  | -           |  |  | -           |      |  | -           |  |  | -            | 
|Granted                                                                                  |  | 500,000    |      |  | 15/11/2004           |  |  | 0.40  0.50 |  |  | 0.11        |      |  | -           |  |  | -            | 
|Cancelled                                                                                |  | (40,000    | )    |  | 12/28/2007           |  |  | -           |  |  | -           |      |  | -           |  |  | -            | 
|Expired                                                                                  |  | (460,000   | )    |  | 2/10/2008            |  |  | -           |  |  | -           |      |  | -           |  |  | -            | 
|Granted                                                                                  |  | 7,000,000  |      |  | 10/1/2005            |  |  | 0.16        |  |  | 0.14        |      |  | 6/30/2012   |  |  | 1.25         | 
|Granted                                                                                  |  | 390,000    |      |  | 8/2/2005             |  |  | 0.15        |  |  | 0.14        |      |  | 6/30/2012   |  |  | 1.25         | 
|Cancelled                                                                                |  | (40,000    | )    |  | 12/28/2007           |  |  | -           |  |  | -           |      |  | -           |  |  | -            | 
|Granted                                                                                  |  | 100,000    |      |  | 5/25/2005            |  |  | 0.13        |  |  | 0.13        |      |  | 6/30/2012   |  |  | 1.25         | 
|Granted                                                                                  |  | 3,290,000  |      |  | 10/17/2005           |  |  | 0.075       |  |  | 0.08        |      |  | -           |  |  | -            | 
|Cancelled                                                                                |  | (560,000   | )    |  | 12/28/2007           |  |  | -           |  |  | -           |      |  | -           |  |  | -            | 
|Granted                                                                                  |  | 90,000     |      |  | 1/3/2007             |  |  | 0.10        |  |  | 0.10        |      |  | 1/3/2012    |  |  | 0.75         | 
|Exercised                                                                                |  | (2,730,000 | )    |  | 12/27/2007           |  |  | 0.075       |  |  | -           |      |  | -           |  |  | -            | 
|Remaining                                                                                |  | 14,260,000 |      |  | As at March 31, 2011 |  |  |             |  |  |             |      |  |             | 
|Weighted Average Exercise Price
      and Contractual Life of Options Remaining in Years |  | $          | 0.15 |  |                      |  |  |             |  |  |             | 1.15 | 

The Company has adopted the fair value accounting for employee
stock options. The Company did not record any stock based compensation expense
during the three months ended March 31, 2011. The Black-Scholes option-pricing
model is used to calculate this expense. There are no further stock based
compensation expenses to be recorded based on options granted to date and their
existing terms and conditions. Multiplying the options by their exercise price
and dividing the total obtained by the total outstanding options calculated the
weighted average exercise price.

NOTE 7. WARRANTS

On April 12, 2010, the Company issued 3,740,150 warrants to
purchase 3,740,150 shares of Common Stock at $0.085 per share, expiring on April
11, 2015. The warrants were issued in exchange for financial advisory services
to be provided from the period from April 11, 2010 until September 30, 2010. The
total fair value of the warrants has been estimated to be $262,090 using the
Black-Scholes option pricing model based on the following assumptions: dividend
yield of 0%, expected volatility of 103.86%, risk-free interest rate of 3%, and
an expected life of 5 years. The company recorded $262,090 in stock based
compensation for the year ended September 30, 2010. There were no warrants
exercised nor issued during the three months ended March 31, 2011. The Company
has the following warrants outstanding to purchase shares of Common Stock as of
March 31, 2011:

Outstanding as at June 30,
      2010
    Issue
      **Date**
    Exercise Price
      $
    Share Price
      on Grant Date $
    Expiry Date
    Remaining
      Contractual Life (Years)
    Reason for Issuance3,000,000
    4/1/2009
    0.03
    0.03
    3/31/2014
    3
    Issued in exchange for
      financial advisory services.3,740,150
    4/12/2010
    0.085
    0.085
    4/11/2015
    4.03
    Issued in exchange for financial advisory
      services.Weighted Average
    
    
    Weighted Average


|Total     |  | Exercise Price |  |  | Contractual Life (Years) | 
|--------- |  | -------------- |  |  | ------------------------ | 
|6,740,150 |  | 0.06           |  |  | 3.515                    | 

9

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NOTE 8: RELATED PARTY TRANSACTIONS

The Company sources some of its funding in the form of
promissory notes from Michael Lee  President and CEO. The Company is indebted
to Mr. Lee in the amount of $52,083 including accrued interest of $15,951as of
March 31, 2011. The directors did not loan any funds to the Company during the
three months ended March 31, 2011. These promissory notes bear interest at 12%
per annum and are unsecured.

NOTE 9: RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB updated FASB ASC Subtopic 810-10,
Consolidation(formerly SFAS No. 160). This guidance establishes
accounting and reporting standards for non-controlling interests in
subsidiaries. The guidance clarifies that a non-controlling interest in a
subsidiary be accounted for as a component of equity, but separate from the
parents equity. Furthermore, the amount of consolidated net income attributable
to the parent and the non-controlling interest must be clearly identified and
presented on the face of the Consolidated Statements of Operations. The Company
adopted the provisions of the guidance effective October 1, 2009 and the
provisions are being applied prospectively, except for the presentation and
disclosure requirements, which have been applied retrospectively. The adoption
did not have a material impact on our consolidated financial statements.

Recent Issued Standards

FASB ASC Update No. 2009-05 - In August 2009, the FASB
issued ASC Update No. 2009-05, Fair Value Measurements and Disclosures (Topic
820): Measuring Liabilities at Fair Value (ASC Update No. 2009-05). This
update amends ASC 820, Fair Value Measurements and Disclosures and provides
further guidance on measuring the fair value of a liability. The guidance
establishes the types of valuation techniques to be used to value a liability
when a quoted market price in an active market for the identical liability is
not available, such as the use of an identical or similar liability when traded
as an asset. The guidance also further clarifies that a quoted price in an
active market for the identical liability at the measurement date and the quoted
price for the identical liability when traded as an asset in an active market
when no adjustments to the quoted price of the asset are required are both Level
1 fair value measurements. If adjustments are required to be applied to the
quoted price, it results in a level 2 or 3 fair value measurement. The guidance
provided in the update is effective for the first reporting period (including
interim periods) beginning after issuance. The Company does not expect that the
implementation of ASC Update No. 2009-05 will have a material effect on its
financial position or results of operations.

FASB ASC Update No. 2009-12 - In September 2009, the
FASB issued ASC Update No. 2009-12, Fair Value Measurements and Disclosures
(Topic 820): Investments in Certain Entities that Calculate Net Asset Value per
Share (or Its Equivalent) (ASC Update No. 2009-12). This update sets forth
guidance on using the net asset value per share provided by an investee to
estimate the fair value of an alternative investment. Specifically, the update
permits a reporting entity to measure the fair value of this type of investment
on the basis of the net asset value per share of the investment (or its
equivalent) if all or substantially all of the underlying investments used in
the calculation of the net asset value is consistent with ASC 820. The update
also requires additional disclosures by each major category of investment,
including, but not limited to, fair value of underlying investments in the major
category, significant investment strategies, redemption restrictions, and
unfunded commitments related to investments in the major category. The
amendments in this update are effective for interim and annual periods ending
after December 15, 2009 with early application permitted. The Company does not
expect that the implementation of ASC Update No. 2009-12 will have a material
effect on its financial position or results of operations.

10

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In March 2010, the FASB issued new accounting guidance on embedded credit derivatives. This new accounting guidance clarifies the scope exception for embedded credit derivatives and defines which embedded credit derivatives should be evaluated for
bifurcation and separate accounting. The Company does not expect that the implementation of this new accounting guidance will have a material effect on its financial position or results of operations.

FASB ASC Update No. 2010-22 -The FASB has issued FASB Accounting Standards Update (ASU) No. 2010-22, Accounting for Various Topics. ASU 2010-22 amends various SEC paragraphs in the FASB Accounting Standards CodificationTM (Codification)
based on external comments received and the issuance of Staff Accounting Bulletin (SAB) No. 112 , which amends or rescinds portions of certain SAB topics. Specifically, SAB 112 was issued to bring existing SEC guidance into conformity with:
Codification Topic 805, Business Combinations (originally issued as FASB Statement No. 141 (Revised December 2007), Business Combinations); and Codification Topic 810, Consolidation (originally issued as FASB Statement No. 160, Noncontrolling
Interests in Consolidated Financial Statements).

FASB ASC Update No. 2010-29 -The FASB has issued ASU 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations. This amendment affects any public entity as defined by Topic 805,
Business Combinations, that enters into business combinations that are material on an individual or aggregate basis. The comparative financial statements should present and disclose revenue and earnings of the combined entity as though the business
combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and
amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for business combinations for which the
acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The adoption of the ASU 2010-29 will not have material impact to the financial statements of the Company.

NOTE 10: PROPOSED RESTRUCTURING

On April 9, 2010 AlphaRx Canada Limited (ACL), a wholly-owned subsidiary of the Company signed a non-binding letter of intent with Pacific Orient Capital Inc. (POC), a Capital Pool Company listed on the Toronto Venture
Exchange, whereby POC will effect a Qualifying Transaction (the Transaction), as such term is defined under the policies of the Toronto Venture Exchange (the Exchange), by acquiring all of the shares of ACL that are issued
and outstanding at the time of closing of the transaction. The letter of intent was subsequently amended on June 9, 2010. The transaction is to be completed by a) the acquisition of ACL by way of a share exchange through the issuance of one common
share of POC for every common share of ACL at a deemed price of CAD$0.40 per share; and b) the acquisition by AlphaRx International Holdings Ltd. (AIH), the Companys 80% owned subsidiary, of an exclusive, royalty free licence
from the Company, to commercialize the prescription drug Indaflex in Mexico and Asia for a period of 15 years; and c) the acquisition of a sub-licence by POC from AIH to commercialize the prescription drug Indaflex in Mexico and Asia for 8,250,000
Common shares of POC at a deemed price of CAD$0.40 per share. The transaction, among other conditions, shall be conditional upon the completion of a concurrent public offering or private placement of CAD $1.34 million of shares of common
stock at a value of no less than CAD $0.40 per share. In relation thereto the Company has received a non-refundable deposit during April, 2010 of CAD $25,000 to assist in the restructuring. Completion of the proposed Transaction is
conditional on the execution of a definitive agreement to be negotiated by the parties, acceptance and approval by the Exchange and the satisfaction of the minimum listing requirements of the Exchange.

On Feb 28, 2011, the Company announced that it had terminated its proposed Transaction with Pacific Orient Capital Inc., as the parties were not able to satisfy the closing conditions of the proposed Transaction.

11

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NOTE 11. TRANSACTION ADJUSTMENTS

Additional accumulated differences derived from the beginning balances of Non-controlling Interest and Additional-paid-in capital carryover from previous periods is adjusted to reflect the correct balancing figures. This adjustment is a change of
accounting estimation on applicable foreign exchange rate on various transactions and its carryover effects. This change of estimation is not material and has no impact on current period statement of income or operation results.

NOTE 12. RECLASSIFICATIONS

Certain amounts from prior year have been reclassified to conform to current years presentation.

NOTE 13. SUBSEQUENT EVENTS

Management has reviewed subsequent events through the date of filing the Quarter Report on Form 10-Q that includes these interim consolidated financial statements with the US Securities and Exchange Commission. There were no material subsequent
events as at May 13, 2011 that would require recognition or note disclosure in these financial statements.

12

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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion should be read in conjunction with the information contained in the consolidated financial statements of the Company and the notes thereto appearing elsewhere herein and in conjunction with the Management's Discussion and
Analysis of Financial Condition and Results of Operations set forth in the Company's Annual Report on Form 10-K for the year ended September 30, 2010. Readers should carefully review the risk factors disclosed in this Form 10-K and other documents
filed by the Company with the SEC.

As used in this report, the terms "Company", "we", "our" and "us" refer to AlphaRx, Inc., a Delaware corporation.

PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Report contains forward-looking statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as
"anticipate," "expect," "intend," "plan," "will," "we believe," "management believes" and similar language. The forward-looking statements are based on the current expectations of the Company and are subject to certain risks, uncertainties and
assumptions, including those set forth in the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report. Actual results may differ materially from results anticipated in these
forward-looking statements. We base the forward-looking statements on information currently available to us, and we assume no obligation to update them.

Investors are also advised to refer to the information in our previous filings with the Securities and Exchange Commission (SEC), especially on Forms 10-K, 10-Q and 8-K, in which we discuss in more detail various important factors that could cause
actual results to differ from expected or historic results. It is not possible to foresee or identify all such factors. As such, investors should not consider any list of such factors to be an exhaustive statement of all risks and uncertainties or
potentially inaccurate assumptions.

General

AlphaRx is a specialty pharmaceutical company dedicated to developing proven therapies by reformulating FDA approved and marketed drugs which through the application of its proprietary site-specific nano drug delivery technology, offers improved
medical benefits and a potential for significant commercial product development. Our core competence is in the development of novel drug formulations for therapeutic molecules or compounds that have exhibited poor gastro intestinal absorption due to
poor solubility or have yet be administrable to the human body with an acceptable delivery method. Our nano drug delivery system is versatile and offers significant flexibility in the development of suitable dosage formulations (i.e. oral, topical
or parenteral) to meet the requirements of specific drug molecules.

Since 2000, substantial efforts and resources have been devoted to understanding our nano drug delivery technology and establishing a product development pipeline that incorporated this technology with selected molecules. Since 2008, AlphaRx has
undergone many positive changes. New corporate initiatives for China and a corresponding strategic growth plan were implemented; our corporate strategy was refocused on commercializing our nano drug delivery technology as quickly as possible,
building high-value partnerships and reprioritizing the product pipeline. Spending was redirected and aggressive cost control initiatives were implemented. We continue to investing in the further development of our nano drug delivery technology and
to actively seek collaborators and licensees to accelerate the development and commercialization of products incorporating our nano drug delivery system in exchange for milestone payments and royalties. Further development, exploration and
commercialization of the technology entail risk and operational expenses. However, we have made significant progress on refocusing our efforts on strategic development initiatives and cost control and continue to aggressively seek to reduce
non-strategic spending.

Although our product development program address various pharmaceutical markets, including inflammation, stroke and pneumonia, we constantly evaluate and reassess our development program, resulting in new product candidates and discontinuing or
delaying lower priority development program. This development optimization process is essential for assembling a portfolio of short and long-term drug candidates,
in order to build a stable and sustainable revenue and profits for our Company.

13

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Recent Developments

On April 9, 2010, we entered into a non-binding letter of
intent with Pacific Orient Capital Inc. (Pacific), a Capital Pool Company
listed on the TSX Venture Exchange, concerning the proposed acquisition of
AlphaRx Canada Limited ("ACL"), a wholly owned subsidiary of the Company. The
letter of intent was subsequently amended on June 9, 2010. The proposed
acquisition, if completed, will constitute Pacific's qualifying transaction
pursuant to the policies of the TSX Venture Exchange Inc. (the "Exchange"). On
Feb 28, 2011, the Company announced that it had terminated its proposed
Transaction with Pacific Orient Capital Inc., as the parties were not able to
satisfy the closing conditions of the proposed Transaction.

On June 28, 2010, we terminated our licensing agreement with
Cypress Biosciences (Cypress), our world-wide (except Mexico and Asia)
development partner for Indaflex. Despite the termination of Indaflex
development program with Cypress, we continue to develop Indaflex for the
Chinese market. We are currently working with our regulatory consultants,
pending availability of stability data, in preparation for submission of a
clinical trial application with the China State Food and Drug Association
(SFDA) in order to begin human trials in China. These preparations are
proceeding on schedule.

Our other product candidates in development are in earlier or
preclinical research phases, and we continue to assess them for their
compatibility with our technology and market need. Our intent is to seek
partnerships with pharmaceutical and biotechnology companies for certain of
these products. We plan to expand our pipeline with product candidates that
demonstrate significant opportunities for growth.

Overview of Results of Operations

|Three
      Months Ended        |  | Mar 31 2011$ |   |  | Dec 31 2010 **$** |   |  | Sep 30 **2010$** |   |  | Jun 30 2010$ |   |  | Mar 31 2010$ |   |  | Dec 31 2009$ |   |  | Sep 30 2009$ |   |  | Jun 30 2009$ |  
|------------------------------- |  | ------------ | - |  | ----------------- | - |  | ---------------- | - |  | ------------ | - |  | ------------ | - |  | ------------ | - |  | ------------ | - |  | ------------ | -
|Net Sales                       |  | 51,390       |   |  | 22,830            |   |  | 180,432          |   |  | 45,623       |   |  | 48,720       |   |  | 51,570       |   |  | 88,815       |   |  | 20,982       |  
|Net Income (Loss)               |  | (113,657     | ) |  | (191,351          | ) |  | (242,109         | ) |  | (157,366     | ) |  | (206,078     | ) |  | (122,518     | ) |  | (208,562     | ) |  | (235,695     | )
|Net Income (Loss) per Share (1) |  | (0.01        | ) |  | (0.01             | ) |  | (0.01            | ) |  | (0.01        | ) |  | (0.01        | ) |  | (0.01        | ) |  | (0.01        | ) |  | (0.01        | )

NOTE (1) Net Loss per share on a quarterly basis does not equal
net Loss per share for the annual periods due to rounding.

14

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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2011, AS COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2010

The Company incurred a net loss of $113,657 for the three month period ended March 31, 2011 as compared to a net loss of $205,775 incurred for the same period a year ago, a decrease of $92,118. Revenues during the three months ended
March 31, 2011 were about $2,670 more than in the previous period; general and administrative expenses and research development expenses were about $36,514 and $55,006 less than in previous period respectively. These two items were the
primary cause for the decrease in net loss between periods.

Revenues

Total revenues for the three-month period ended March 31, 2011 were $51,390 as compared to $48,720 generated for the same period a year ago, an increase of $2,670 or about 5.5% . Royalty revenues were comparable year over year at
$26,375 for the three months ended March 31, 2011 as compared to $18,720 for the same period a year ago, an increase of $7,655 or about 41%. We continue to pursue revenue opportunities in all forms (consulting, royalties and license
fees).

General and Administrative Expenses

General and Administrative expenses consist primarily of personnel costs related to general management functions, finance, office overheads, as well as insurance costs and professional fees related to legal, audit and tax matters.

General and Administrative expenses were $127,398 for the three month period ended March 31, 2011 as compared to $163,912 incurred for the same period a year ago, a decrease of $36,514 or about 22.5% . The decrease is primarily due to
cut down of professional fees and insurance costs.

Research and Development Expenses

Research and development expenses include costs for scientific personnel, supplies, equipment, and outsourced clinical and other research activities.

Research and development expenses for the three months ended March 31, 2011 were $2,632 as compared to $57,638 incurred for the same period a year ago, a decrease of $55,006 or about 95%. The continuing strength of the Canadian dollar
continues keep out US Dollar costs high when translated. Research efforts will again increase in the future depending on the timing and availability of additional funds. We also seek collaborative partners in order to obtain third party funding for
certain drug candidates that show commercial promise in exchange for commercialization rights.

Depreciation

Depreciation totalled $9,075 for the three months ended March 31, 2011 as compared to $10,061 incurred during the same period a year ago, a decrease of $986 or about 10%. Our capital asset purchases were minimized during the last fiscal
year. Certain assets are now fully depreciated resulting in decreasing depreciation expense. Should any assets become permanently impaired they are written off to income as determined.

Loss from Operations

Loss from operations were $87,715 for the three months ended March 31, 2011 as compared to a net loss of $182,891 incurred for the same period a year ago, a decrease of $95,176 or about 52%.

Interest Expense

Interest expense for the three months ended March 31, 2011 was $25,943 as compared to interest expense of $22,884 generated during the same period a year ago. The increase is due to the continuing strength of the Canadian dollar continues
keep out US Dollar costs high when translated.

15

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Non-Controlling interest in gain/(loss) of Consolidated Subsidiaries

We reflected a non-controlling interest income of $3,889 for the three months ended March 31, 2011 as compared to a non-controlling interest loss of $303 for the same period a year ago. Non-Controlling interest represents our minority
shareholders proportionate interest (which is 20%) in our 80% owned subsidiary  AIH. The non-controlling interest resulted in the investment in our subsidiary AlphaRx International Holdings Ltd. by an independent third party  New
Super Ltd. during June 2006. On 5/18/2010, New Super Ltd. had infused an additional $173,237 in exchange of an additional 5% ownership of our subsidiary AlphaRx International Holdings Ltd.

Net Loss

As a result of the above mentioned revenue and expense items, we incurred a net loss of $113,657 for the three months ended March 31, 2011 as compared to a net loss of $205,775 generated in the same period a year ago.

LIQUIDITY AND CAPITAL RESOURCES

As at March 31, 2011 the Company had a working capital deficiency of $1,436,404 as compared to a working capital deficiency of $1,146,910 as at September 30, 2010. The Company has also increased its stockholders deficiency to
$1,411,988 as at March 31, 2011 compared to a stockholders deficiency of $1,103,832 as at September 30, 2010. We did not issue any stock during the three months ended March 31, 2011.

We have a licensing arrangement with Andromaco, which provides us with a small royalty stream. We also have licensing arrangements with Gaia BioPharma Limited which may provide us with milestone payments and/or royalty streams in the future. There
is no assurance that such payments or royalty streams will materialize.

Since inception, we have financed operations principally from the sale of Common Stock and issuance of promissory notes and expect to continue this practice to fund our ongoing activities.

We currently do not have sufficient resources to complete the commercialization of any of our proposed products or to carry out our entire business strategy. Therefore, we will likely need to raise substantial additional capital to fund our
operations in the future. We cannot be certain that any financing will be available when needed on acceptable terms or at all. Any additional equity financings will be dilutive to our existing stockholders, and debt financing, if available, may
require additional stock to be issued and/or involve restrictive covenants on our business.

We expect to continue to spend capital on:

|1. | research and development programs;                                                            
|-- | ----------------------------------------------------------------------------------------------
|2. | preclinical studies and clinical trials;                                                      
|3. | regulatory processes; and                                                                     
|4. | third party licensees and distribution partners to manufacture and market our products for us.

The amount of capital we may need will depend on many factors, including:

|1. | the progress, timing and scope of our research and development programs;                                  
|-- | ----------------------------------------------------------------------------------------------------------
|2. | the progress, timing and scope of our preclinical studies and clinical trials;                            
|3. | the time and cost necessary to obtain regulatory approvals;                                               
|4. | the time and cost necessary to establish or to retain sales and marketing partners to market our products;
|5. | the time and cost necessary to respond to technological and market developments; and                      
|6. | new collaborative, licensing and other commercial relationships that we may establish.                    

The inability to raise capital would have a material adverse effect on the Company. We currently have no capital commitments other than one leased auto and for certain research equipment.

16

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CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

Certain of the information contained in this document constitutes forward-looking statements, including but not limited to those with respect to the future revenues, our development strategy, involve known and unknown risks,
uncertainties, and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors
include, among others, the risks and uncertainties associated with a drug delivery company which has not successfully commercialized our first product, including a history of net losses, unproven technology, lack of manufacturing experience, current
and potential competitors with significant technical and marketing resources, need for future capital and dependence on collaborative partners and on key personnel. Additionally, we are subject to the risks and uncertainties associated with all drug
delivery companies, including compliance with government regulations and the possibility of patent infringement litigation, as well as those factors disclosed in our documents filed from time to time with the United States Securities and Exchange
Commission.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Management assessed our internal control over financial reporting as of March 31, 2011. Management based its assessment on criteria established in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Managements assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls.

Based on this assessment, management has concluded that as of March 31, 2011, our internal control over financial reporting was ineffective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with U.S. generally accepted accounting principles. We noted that there is a lack of segregation of certain duties at the Company due to the small number of employees with responsibility for
general administrative and financial matters. This constitutes a deficiency in financial reporting. We therefore conclude that our disclosure controls over financial reporting were ineffective as of and for the three months ended March 31, 2011. At
this time, management has decided that considering the employees involved and the control procedures in place, the risks associated with such lack of segregation of duties are insignificant and the potential benefits of adding additional employees
to clearly segregate duties do not justify the additional expenses associated with such increases. Management will periodically re-evaluate this situation. If the volume of business increases and sufficient capital is secured, it is the
Companys intention to further increase staffing to mitigate the current lack of segregation of duties within the general, administrative and financial functions.

Changes in Internal Controls

Management has evaluated the effectiveness of the disclosure controls and procedures as of March 31, 2011. Based on such evaluation, management has concluded that the disclosure controls and procedures were ineffective for their intended purpose
described above. There were no changes to the internal controls during the quarter ended March 31, 2011 that have materially affected or that are reasonably likely to affect the internal controls.

Limitation on the Effectiveness of Controls

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues, if any, within a company have been detected. Such limitations include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur
because of human failures, such as simple errors or mistakes or intentional circumvention of the established process.

17

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PART II: OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

There are currently no legal proceedings against the Company or any of its subsidiaries.

ITEM 1A  RISK FACTORS

The following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements that we make in this Report and elsewhere (including oral statements) from time to time. Any of the following risks
could materially and adversely affect our business, our operating results, our financial condition and the actual outcome of matters as to which forward-looking statements are made in this Report.

Financial Risks

- We have a history of operating losses and we may never achieve profitability. If we continue to incur losses or we fail to raise additional capital or receive substantial cash inflows from our major shareholders, we may be forced to cease
operations.
- We may not be able to make the payments we owe to our creditor.
- The audit opinion issued by our independent registered public accounting firm relating to our financial statements for the year ended September 30, 2010 contained a going concern explanatory paragraph.

Risks Related to our Business

- We are highly dependent on the clinical success of our product candidates.
- We are highly dependent upon collaborative partners to develop and commercialize compounds using our delivery agents.
- Our collaborative partners control the clinical development of certain of our drug candidates and may terminate their efforts at will.
- Our product candidates are in various stages of development, and we cannot be certain that any will be suitable for commercial purposes.
- Our collaborative partners are free to develop competing products.
- Our business will suffer if we cannot adequately protect our patent and proprietary rights.
- We may be at risk of having to obtain a license from third parties making proprietary improvements to our technology.
- We are dependent on third parties to manufacture and, in some cases, test our products.
- We are dependent on our key personnel and if we cannot recruit and retain leaders in our research, development, manufacturing, and commercial organizations, our business will be harmed.

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- Our future business success depends heavily upon regulatory approvals, which can be difficult to obtain for a variety of reasons, including
  cost.
- We may face product liability claims related to participation in clinical
  trials for future products.
- We are subject to environmental, health and safety laws and regulations
  for which we incur costs to comply.
- We face rapid technological change and intense competition.

Other Risks

- Our disclosure controls & procedures and internal control over
  financial reporting were ineffective. In connection with managements
  assessment of the Companys disclosure controls & procedures and internal
  control over financial reporting, we identified the following material
  weakness in our disclosure controls & procedures and internal control over
  financial reporting as of March 31, 2011:
- Segregation of Duties:We
  did not maintain adequate segregation of duties related to job
  responsibilities for initiating, authorizing, and recording of certain
  transactions. Due to this material weakness, there is a risk that a material
  misstatement in the financial statements would not be prevented or detected on
  a timely basis. A deficiency in disclosure and internal controls may result in
  a loss of public confidence in the Company, which could have an adverse effect
  on our stock price.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.

We did not issue nor sell any equity securities during the
three months ended March 31, 2011.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

Not Applicable

ITEM 4 - (REMOVED AND RESERVED)

ITEM 5 - OTHER INFORMATION

Not Applicable

ITEM 6 - EXHIBITS

(i) EXHIBITS.

|     |                                                                                                                                                                                                                                                                                                            
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1 | Certification of Chief Executive and Interim Chief
      Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the
      Securities Exchange Act of 1934, as amended.                                                                                                                       
|     |                                                                                                                                                                                                                                                                                                            
|32.1 | Certification of Chief Executive Officer and Interim
      Chief Financial Officer required by Rule 13a- 14(b) or Rule 15d-14(b)
      under the Securities Exchange Act of 1934, as amended, and 18 U.S.C.
      Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
      of 2002.

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SIGNATURES:

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

DATED: May13, 2011

ALPHARx INC.

By: /S/ Michael M. Lee
Michael M. Lee, Chief Executive Officer 
Directors:

By: /S/ Michael M. Lee
Michael M. Lee, Director

By:/S/ David Milroy
Dr. David Milroy, Director

By: /S/ Ford Moore
Dr. Ford Moore, Director

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